Economics: Unit 3, Macroeconomics

What are some reasons that GDP is not a good measure of a nation's economic health?

-Ignores informal an illegal exchanges -Counts some negatives as positives -Says nothing about income distribution -Leaves out unpaid household and volunteer work

What is creeping inflation?

A gradual inflation. Normal inflation of which we are used to. Rises a little each year. Healthy economy.

Identify a good or service that would be included in calculating a nation's GDP and a good or service that would not be included in calculating a nation's GDP

A new pencil is a final good and is included in GDP because it is a new good that is ready for use by consumer and it was manufactured in the USA. The parts that are used in making a pencil such as the lead, is not included in GDP because it is already included in the final good.

What is the consumer price index?

A price index for a "market basket" of consumer goods and services.

What are two main types of inflation in a market economy?

Demand pull inflation: Extra demand by buyers exerts a "pull" on prices, forcing them up. Cost-Push Inflation: The rising cost of land, labor, or capital "pushes" the overall price level higher .

What are the four stages of the business cycle?

Expansion: period of economic growth Peak: economy activity has reached its highest level Contraction: a period of economic decline Trough: lowest point of contraction, economy hits lowest point

What happens to the three main indicators during an economic contraction?

GDP: Decreasing(economy is shrinking) v Unemployment Rate: Increasing <4-6% , ^ Inflation Rate: Fluctuating, low rate or deflation >3%

What happens to the three main indicators during an economic expansion? GDP Unemployment Rate Inflation Rate

GDP: Increasing(economy is growing ^) Unemployment Rate: Decreasing(economy is shrinking v) >/equal to 4-6% Inflation Rate: Fluctuating creeping inflation(low-moderate levels, 3-4%, ^)

What is GDP?

Gross Domestic Product: Economic indicator that measures a country's total economic output.

What is the difference between: Nominal GDP Real GDP Per Capita GDP

Nominal: Measures the output of an economy valued at today's prices, or in current dollars. Real: Measures the output of an economy not in current dollars, but in constant dollars (fixed at a rate that was current in a specified base year) Per Capita: "per person" - A nation's real gross domestic product divided by it's population. It's an accepted measure of a society's standard of living.

What are the four types of unemployment? Provide an example of each.

1) Frictional: "Between jobs" (Ex: Someone who.. quits, resigns, is looking for a better opportunity) 2) Structural: Technology takes people's jobs (Ex: Machine takes workers job in factory) 3) Seasonal: Base on calendar changes (Ex: Agriculture "migrant workers", construction) 4) Cyclical: Base on decline/improvement in economic growth (Ex: Recession in 2000, Housing bubble in 2008)

What are the three main economic indicators that economists use to determine the "health" of the economy?

1) GDP 2) Unemployment Rate 3) Inflation Rate

What is a wage spiral?

A cycle in which rising prices drive up and then rising wages drive up prices. The result is inflationary spiral that can be hard to break.

Who calculated the unemployment rate? How do they compute it?

BLS (Bureau of Labor Statistics) Unemployed=total labor force x 100

Why does inflation happen?

Because of an increase in the money supply.

What is the equation for GDP? What does each part of the equation stand for?

Household Consumption (c)+Business Investment (I)+Government purchases (G)+Net Exports (NX) =GDP

What are the three economic indicators used to analyze/evaluate the business cycle? How do they help economists determine what's happening with the economy?

Leading indicator: predict peaks and troughs Coincident indicator: determines what is happening now Logging indicator: determines what has happened in the past

What is the difference between "unemployed" and "not in the labor force"?

Unemployed: No job, old enough to work, looking for work Not in the Labor Force: Not old enough to work and /or not seeking employment

What is hyperinflation?

The result of when inflation goes into overdrive.

What is deflation?

When the inflation rate is negative, it is deflation.